It is urgent to intervene in pipeline tariffs to mitigate the oil crisis: ACP

In light of the unprecedented crisis facing the hydrocarbon industry, the Colombian Petroleum Association (ACP) respectfully calls on the National Government to issue, as soon as possible, the regulation that allows for the reduction of crude oil transportation tariffs by pipeline, whose weight in the cost of the barrel is around 45%, and thus, contribute to mitigating the impacts of the dramatic drop in international oil prices in Colombia.

•  A daily drop of around 35,000 barrels of oil is expected, which could reach 100,000 if Brent remains below 25 dollars a barrel for the rest of the year.
• Regulated crude oil transportation tariffs by pipelines represent about 45% of the total operating cost.
• Central government and regional tax revenues could fall by more than 75% due to the oil crisis.

 

According to the latest economic report from the ACP “”Double crisis covid-19 and oil price war: impact for Colombia and the hydrocarbons sector,", with the current price crisis it will be difficult to sustain the budgeted investments and oil production for 2020, and a daily drop of 35,000 barrels is expected, which could reach 100,000 if the Brent reference remains below 25 dollars a barrel for the rest of the year.

This situation, combined with the high costs of operating in Colombia, means that the revenues received per barrel do not cover the average costs of producing oil in the country. The ACP report, prepared based on information provided by executives of a representative group of private producing companies, shows that the national average of operating costs is between 20 – 25 dollars per barrel. On the other hand, the“”break-even" or equilibrium point to cover production costs in Colombia is between 40 and 45 dollars per barrel, meaning that below this range, companies generate revenues that barely cover their current obligations in the production phase.

“The worsening of the price crisis and high uncertainty have led companies to reduce investments, close wells and fields, with a serious impact on employment, the hiring of goods and services, and the economic dynamics of producing regions; not to mention the effect on the collection of royalties, taxes, and contractual economic rights, and its impact on the Nation's finances. The National Government is aware of this, important measures have been adopted, but urgent intervention in pipeline transportation rates is required, as they are excessively high compared to production costs, are not competitive internationally, and are the main obstacle for companies in this difficult situation,” stated Francisco José Lloreda Mera, president of the ACP.

The union leader also explained that “pipeline transportation is the only link in the sector's chain whose cost has remained practically the same in recent years, representing about half of production costs, is not manageable by E&P companies because it is regulated by the Ministry of Energy, and various studies show that it is excessive; therefore, it is essential that rates be reviewed not only due to the current price crisis and the sustainability of the industry in the short term, but that the current methodology must be structurally reformulated for the future.”.

Measures adopted to date

In order to mitigate the double crisis caused by Covid-19 and the drop in international prices, the Government has made progress in actions for E&P contracts with the National Hydrocarbons Agency (ANH), related to deadline extensions and reduction of bank guarantees. Likewise, for all taxpayers, progress has been made in the refund of VAT balances and flexibility of the tax calendar. Finally, additional measures were announced for the deferral of payment of contractual economic rights. These decisions are of great importance for the industry and are expected to help preserve E&P contracts, future investment, and partially alleviate the burden on companies to support their sustainability during the crisis.

“The reduction of contributions from this sector to the national economy, projected to be more than 75% compared to 2019, is critical at this time when income is most needed to help the most vulnerable population facing the economic and social emergency caused by Covid-19. We hope to continue making progress in seeking effective measures with the Government that allow us to keep operating and mitigate the crisis in the sector, while preventing a devastating effect on employment and the regional and national economy,” emphasized the union leader.

See report: